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Kangaroo Island timber firm rejects $20 million land offer

Business

Kangaroo Island Plantation Timbers has rejected a $20 million offer to buy the majority of its forestry land and use it for farming, saying the bid was “far below book value”.

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KI Phoenix – which is partly owned by national farmland investment manager AAG Investment Management – made a $20 million offer to buy 15,600 hectares of Kangaroo Island Plantation Timbers (KIPT) land and return bushfire-hit forest to agricultural land two weeks ago.

KIPT managing director Keith Lamb said while the publicly-listed company remained open to negotiating on offers of “merit”, the conditional bid made by KI Phoenix was “opportunistic”.

“The land value recorded on KIPT’s balance sheet is $59.28 million, based on independent expert advice by leading rural valuers,” he told shareholders in a statement on the ASX this morning.

“The latest valuation was set at June 2020, following the fires of 2019-20 and is benchmarked below equivalent value on mainland South Australia. Since June 2020 land values around the country have risen.

“The conditional offer made by KI Phoenix is substantially less than book value.

“This demonstrates the bidder does not understand the value proposition available to the company, through salvaging its forest produce by careful extraction and clever marketing, and the consequential benefit for shareholders in persevering underlying land value.”

About 95 per cent of KIPT’s plantations were impacted by the devastating fires that tore through the island in December 2019 and January 2020. The company has received more than $50 million in insurance compensation payouts since the fires and is in a race against time to salvage damaged timber and transport it to export markets before it rots.

According to KIPT’s website, the company owns about 25,000ha of “productive Kangaroo Island land” of which 14,200 was forests and a further 7300ha is native vegetation.

It also owns a disused Timber Creek sawmill site – which it has planned to develop into a wood pellet plant – and a proposed deep-sea port site at Smith Bay, which is about 20km west of Kingscote on the island’s north coast.

Lamb said KI Phoenix’s offer to purchase what he considered “productive land” did not align with KIPT’s “net stocked area” nor did it take into account the cost associated with extracting the timber from fire-affected forests to preserve the land.

“When you add the numbers up it doesn’t match the offer that was made,” he said.

In a statement, KI Phoenix said it had planned to remediate the land, which would be a “win-win for the local community, environment, economy and especially KIPT shareholders”.

“We believe the planned return to agricultural use is what the Kangaroo Island community wants and the shareholders need,” it said.

“For shareholders, the financial risk of KIPT proceeding with its current plans of clearing, replanting, building the port and possibly a pellet mill, plus the cost of estate and company management is very high and likely to cost far more than the company’s cash reserves well before the new forests are ready to harvest.”

KI Phoenix said its offer would have created 48 full-time jobs to remove the burned trees and remediate the land for grazing, cropping and developing farming infrastructure.

KIPT has an estimated 4.5 million tonnes of fire-affected timber on the island, which it began shipping to mainland sawmills via the SeaLink passenger ferry service earlier this year.

The company estimates it has two years before its burnt softwood pine trees rot while its hardwood blue gums could potentially last up to five years.

Last week it also began its first shipment to South Korea from an existing ramp facility at Kingscote wharf.

Lamb said while the company was using the two alternative options while it awaited a State Government decision on the proposed port, it remained committed to its Smith Bay project.

The proposed $40 million jetty and handling facility has been declared a major project and is still awaiting a final decision from the State Government, following public consultation in February.

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